Earlier this spring [subscription required], I warned that shorting in a zero interest-rate policy (ZIRP) world was a difficult task. Most of the big institutions that opted for "rate normalization" had the good sense to hold long duration against it. Tapering and the Federal Reserve's forward guidance, or the Fed's expectations for monetary policy for the future, led to a historic shift where open interest shifted to the "greens" (contracts that expire two to three years from today) in eurodollar futures. Participants remained confused about tomorrow, but confident in their understanding of what would happen two years from now.

All that's being tossed in the boneyard now. The list of explanations for why the bond market is rallying is longer than Ryan Seacrest's to-do list. A short squeeze, Europe, Russia, Pimco, the weather -- they're all a mulligatawny of "This wasn't supposed to happen" analysis. It is what it is.

Two things stand out to me:

1. The calibration of Federal Reserve policy without large-scale asset purchases (LSAP) isn't overtly accommodating. Forward guidance works to harden the stasis in markets and attenuate the present environment.

2. Participant ideas of "normal" remain highly skewed by the experience of the 1970s to the 1980s. As the great disinflation apexed, people associated "normal" with levels attached to the correction of an anomaly. Prior to the 1960s, low growth and low inflation were common outside of global war. The cleansing that's ripping through the term structure now should provide fertile planting ground for new ideas about the level of rates this summer.